For years, Ethereum has been the cornerstone of decentralized finance (DeFi), enabling onchain financial tools. However, one of crypto's most rapidly expanding sectors, perpetual futures, has largely developed on other platforms. Traders now often associate onchain perpetuals with networks like Hyperliquid or Solana rather than Ethereum, primarily because perpetuals necessitate extremely fast, low-cost, high-frequency trading, capabilities that Ethereum's base layer was not initially designed to optimize.
AJ Warner, chief strategy officer at Offchain Labs, the primary developer of the Layer-2 Arbitrum, explained that perpetuals require frequent transactions, fast execution, and deep liquidity, making them a natural fit for platforms like Arbitrum. This distinction has gained significance as decentralized perpetual exchanges mature and attract institutional interest.
Ethereum's original architecture, while prioritizing security, presented challenges for latency-sensitive trading applications due to its block times and gas costs. When the decentralized perpetuals exchange GMX launched on Arbitrum in 2021, it established a successful model. Warner noted that Ethereum's mainnet fees were prohibitively expensive, driving perpetuals builders to Arbitrum. Offchain Labs subsequently focused on this sector, fostering a concentration of builders and capital.
Currently, much of Ethereum's perpetual trading activity occurs on Layer-2 networks such as Arbitrum and Base, which offer a compromise by preserving Ethereum's security while significantly enhancing trading performance. These networks have reduced block times and become more attractive due to growing user bases and liquidity.
Chris Boulous, from Dromos Labs, the developer firm behind Aerodrome on the Base network, emphasized the importance of network effects in trading. He stated that trading is a network-effects business, requiring protocols to build where liquidity and users already exist. This dynamic creates a self-reinforcing cycle where liquidity providers follow traders, attracting new applications.
While Ethereum's Layer-2 ecosystem is a significant hub, other platforms have also emerged. Hyperliquid developed an application-specific chain optimized for perpetual trading, and Solana has leveraged its low fees and existing retail trading base, particularly in memecoins, to attract users. Brian Smith of the Jito Foundation highlighted that retail flow is crucial for exchange platforms, especially for perps, and that Solana leads in this area.
Smith also pointed to fragmentation as a challenge for Ethereum, where users and liquidity are dispersed across multiple Layer-2s, necessitating asset bridging and a less seamless experience compared to single-chain ecosystems. Ethereum co-founder Vitalik Buterin has acknowledged that the original Layer-2 roadmap may need revision as Layer-2s have decentralized slower than anticipated and Ethereum's base layer has improved its scalability.
Despite these challenges, some Ethereum proponents argue that the focus on execution speed overlooks Ethereum's fundamental role as a settlement and collateral base. Matthieu Saint Olive, a staff product manager at MetaMask, believes Ethereum's strength lies in its deep liquidity, diverse asset range, stablecoins, and mature DeFi primitives, which purpose-built chains still rely on. He views Layer-2s as Ethereum's scaling solution for active trading without compromising the base layer's value.
As institutions increasingly explore onchain derivatives, the focus shifts to practical considerations like execution, custody, and predictability over ideology. Warner noted that institutions require greater liquidity, efficient capital usage, and cross-venue trading capabilities before committing significant volume onchain. Boulous believes the next milestone for onchain activity is to offer advantages over traditional markets in terms of cost and capability.
Perpetuals are seen as a leading indicator for the migration of traditional financial activity onto the blockchain. Ethereum's role is evolving, with Solana and Hyperliquid handling high-speed execution, while Ethereum, through its Layer-2 ecosystem, serves as the underlying settlement and collateral layer. The persistence of this division of labor will depend on Ethereum's ability to address challenges such as fragmented liquidity, interoperability, and user experience.
